PRIME Minister Kevin Rudd has quietly appointed a British engineering executive to head his $100 million-a-year Global Carbon Capture and Storage Institute aimed at saving coal as a power-generation fuel.

Nick Otter, now director of technology and external affairs at Alstom Power UK, the global power-generation equipment supplier, will take on the task of making Australia a lead player in the carbon capture and storage (CCS) technology to clean up polluting coal-fired generators, opening up lucrative Chinese and Indian markets.

While Otter comes to the task well credentialled — he has been adviser to Britain and the European Union on CCS — the appointment of a non-Australian to an agency designed to give Australia a flagship role in a crucial new technology was probably inevitable.

An Australian appointee might appear too parochial to attract competitor countries as members.

Surprisingly, the message out of a November preparatory meeting of the GCCSI in London was that the new agency should eschew any direct involvement in research and development. Rather, it should concentrate on its core brief to help orchestrate 20 working CCS generators by 2020 with the full spread of carbon capture, transport of the carbon dioxide emissions and safe sequestration.

Given this is also Rudd's declared aim — backed by $100 million-a-year funding — it's amazing that CCS was ignored in the Government's recent white paper on carbon reduction. Climate Change Minister Penny Wong set targets and gave away permits but did not embrace credits for carbon capture and storage.

The $3.9 billion handout to coal-fired power generators said it all. The more they pollute, the more they get. The dirtiest brown coal generators in Victoria's Latrobe Valley will pocket the lion's share.

And what do they have to do to receive this windfall? Nothing. The green paper talked of some form of conditionality to offset the investment risk for coal-fired generators of any carbon-reduction cap and trade scheme. The white paper ditched this, simply handing generators $3.9 billion over five years.

There's no requirement for any action on CCS for future plant or retrofitting carbon capture to old plants. The white paper, while rejecting any conditionality, concedes that "success with CCS would be an important contribution to enhancing the viability of electricity generation and coal-based sectors of the economy", but does nothing about it.

It appears the Rudd cabinet buckled at the knees at the threatened prospect of generators either closing down or not being able to attract investors for needed new plant: $3.9 billion is the price Rudd paid to keep the lights on.

Rejection of any technology conditionality on the huge handout exposes a fault line in the Rudd cabinet. Wong's soft white paper runs counter to Resources Minister Martin Ferguson's push for CCS and Rudd's personal commitment to GCCSI.

It's like a left-right brain divide. The two just don't connect. Yet they must if Australia is to cut emissions and have a coal industry as well. Forty per cent of Australia's carbon dioxide emissions come from coal-fired generators, while coal is the nation's biggest export.

The $3.9 billion handout to generators might have been better spent building a fully integrated demonstration CCS plant, or retrofitting older generators. Australia could have led the world in bringing the various elements of the CCS package together in an integrated demonstration plant. It could have been a regulatory and technology trailblazer, while signalling to investors that it can be done.

The new hurdles placed on Gunns' $2.2 billion pulp mill show a similar disconnect between policy and actions. While Rudd ministers declare their primary focus on "jobs, jobs, jobs", Environment Minister Peter Garrett wants Gunns to do new work on effluent, spinning out any final approval until after the next election.

Like the generators handout, Garrett's delay is sheer political expediency. Garrett appears more concerned about securing Green preferences in marginal seats in 2010 than jobs in an economic downturn.